Tax Breaks - tell me something I do not know

[pugsy]

Right Chaps

Can anyone give any input into my issue of the moment. Is there any financial benefit (ie. tax break for CGT) in placing my retired parents in one of my properties.

Thanks

pugsy

[lauralivesartnouveau]

Hi Pugsy

I am afraid that CGT is a big problem for all landlords.

I am no tax advisor but I can tell you that it is possible to transfer property only between husband and wife not other family members.

You can get taper relief so that if you own a property for more than 3 years for each year following you can get 5% relief up to a max of 40%.

If you or your wife live in the property you can claim for the whole period plus an additional 3 years and possible letting relief. The formula is quite complex PM me if you want details.

Yours

Oliver

[plym77]

Hi Pugsy

I am a Chartered Tax Adviser.

Oliver is right and I would like to further clarify this for you.

Yes, if you were to live in the property as your PPR, then you could elect within 2 years of the property first becoming available to you as your private residence that the property is your PPR. Then elect back to your normal residence. However to do this you would need to have quality of residence. You cannot simply 'say' it is your residence when it isn't. Additionally, you and your wife can only have one elected PPR at any one time. Therefore your main PPR would lose relief for the period that your second PPR is elected. This said, you would usually only elect your second PPR for a small period, which in reality would probably produce a very minor gain on the sale of your normal PPR and would probably be within the CGT annual exemption.

If the property has been your PPR at some point then yes, the final 3 years of ownership will be exempt. Additionally, Lettings Relief (of up to £40k per owner - depending on the figures) would be available, as would Taper Relief (for over 3 years ownership) and possibly your CGT annual exemption. Please however note that you cannot exempt the whole gain by simply electing at some point - it will exempt only the period for which the PPR election is in place plus the final 3 years.

If you were to transfer the property to your parents, or put it into trust with them as beneficiaries that PPR relief would be available going forward either to your parents (if owned by them absolutely) or by the Trust (as the beneficiaries are living in the property as their PPR), however, to do this you would be making a transfer at open market value and as such you may have a CGT liability to market value to date - this is better used for transactions that are not pregnant with gains. However, several gifts to parents or Trust using CGT annual exemptions and reliefs available over a number of tax years can be an option. Additionally, it is not normally wise to pass property to parents due to IHT planning.

Finally, do note that if you decide to keep the property and put them in it anyway, that unless you are charging them market rent, you cannot create a revenue loss on the property to either carry forward or use against other rental profits in the year. This would be a peppercorn rent and the losses are ringfenced.

Regards

Sherena

[pugsy]

Thanks for the information. This is a complicated one for us as it is emotionally driven. Due to some bad luck a few years ago, our parents will only clear around 100k from the sale of their house, they plan to return to the southern hemisphere where that can still buy a decent prop. But we do not want to lose them, hence them living in one of our properties. There would be no transfer and we would not live there, it would be specifically for them as a home. All the internet hits i get on this subject are pre-1990. So to get it straight in this situation, there is no tax relief available to us other than taper relief... plus a very clear conscience!? Regards.

[odecar]

[... plus a very clear conscience!?

[Simon Dewsberry]

Only when HMRC agree with you !

Simon